The Warranty You're Selling Could Cost Your Company A Lawsuit Featured

If you are a business or service provider who asks consumers to purchase a warranty along with your product or service, beware.

According to the terms of Ontario’s Consumer Protection Act (the Act), they shouldn’t have to. The Act provides rights to consumers and imposes obligations on businesses with respect to many familiar personal and household transactions. From the perspective of consumers, the Act affords protections against unfair business practices. From the perspective of business owners, the Act may create risks and additional expense if care is not taken to ensure compliance.

What does the Act apply to?

The Act regulates a variety of consumer agreements and other dealings between “consumers” and “suppliers.”

“Supplier” is broadly defined by the Act to include “a person who is in the business of selling, leasing or trading in goods or services…” or an agent of such a person. “Consumer” means an individual who purchases goods or services for personal, family or household purposes. The broad language used by the Act means that most people or businesses who sell goods or services to the public are subject to the Act’s minimum requirements.

What does the act say about warranties and other consumer agreements?

The Act prohibits suppliers and their agents from giving consumers false or misleading information about their goods or services. The Act also implies into all consumer agreements a warranty that the goods and services being sold to consumers are of a reasonably acceptable quality. That means that you should not feel forced to purchase a warranty unless it is for a long period of time. Certain consumer agreements must meet minimum standards for the information disclosed to consumers, delivery times for goods and services, and other matters. Door-to-door, internet, and gym membership agreements, for example, must be in writing and disclose specific information about the goods or services being sold.

Suppliers must allow customers to cancel certain categories of consumer agreements, even if the goods or services sold under such agreements have already been delivered to the consumer. Internet, telephone, gym membership, and door-to-door sales agreements, among others, must be given to the consumer in writing within a specified time after the consumer agrees to buy the goods or services. Failure to do so may entitle the consumer to cancel their agreement and receive a full refund.

Door-to-door sales agreements (and other similar agreements), are subject to a “cooling off” period, which allows the consumer to cancel the transaction for any reason whatsoever during the “cooling off” period.

What are the consequences of not complying with the Act?

The consequences to a supplier of not complying with the Act includes both a lawsuit and possible involvement of the Ministry of Government and Consumer Services. With respect to a lawsuit, a consumer who proves that a supplier did not comply with the Act may be entitled to cancel his or her consumer agreement and claim damages for breach of contract, among other things. The Act gives consumers several advantages above a request for payment of money. It includes that in the situation of a confusing contract, it be interpreted favorably for the consumer.

In addition to being liable for a civil action by a consumer, a supplier who is suspected of violating the Act may face an investigation by the Ministry of Consumer and Government Services. If the investigation reveals a violation of the Act, the Ministry may order the supplier and/or its agents to pay penalties, retract misleading statements, cease unlawful activities, and other consequences.

Conclusion

The obligations imposed on suppliers and their agents by the Act vary depending on the nature of the goods and services being sold to consumers. Non-compliance with the Act may result in civil liability, penalties by the Ministry, inconvenience, and other consequences.

The risk to a supplier of non-compliance with the Act is particularly serious if several consumers start a class action lawsuit. Non-compliance is also risky in cases involving a supplier performing services over an extended period of time, such as a residential construction contract. To avoid such risks, it is important for anyone selling goods or services to the public to ensure their transactions and other dealings with the public comply with the Act’s requirements.